Political Science 2211E Lecture Notes - American Economic Association, De Beers, Friedrich Hayek
11 Mar 2014
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The crisis of the welfare state and the rise of. Topics: the stagflation crisis, the political implications of stagflation, the collapse of bretton woods and the shift to neoliberalism. High inflation and unemployment at the same time. Was supposed to be impossible in keynesian economics. Demand increases, unemployment decreases, inflation goes up. Predicted stagflation in his 1968 presidential address to the american economics. Keynesians believed unemployment and inflation moved in opposite directions in a direct trade off. Lower unemployment could be achieve by accepting slightly higher inflation. Friedman argued the trade off between unemployment and inflation was not stable. Higher inflation that lasted for a while would eventually begin to snowball. Inflation: purchasing power of your currency is weakening: unemployment 6, inflation 5, trade off was stable. Friedman: unemployment 6, inflation 5% -> 6% -> 7, trade off between unemployment and inflation was not stable, inflation would eventually soar. Unions incorporate inflation rate into wage demands.
